Friday, September 30, 2011

One observation of note: gold acutally rallied during the last few minutes of sell-off in the NYSE/Dow/SPX. It should be disconcerting to technicians and bubbleheads that the market shit the bed like this on the last day of a quarter, which is usually used to make the markets look friendly. In the after-market right now, the SPX futures are still selling off, while gold and silver grind higher...

Thursday, September 29, 2011

Standard Bank comments today: Although buying interest out of India has been particularly strong, support is broad-based throughout Asia, with physical demand in places like Thailand and China also rising. At the same time, gold scrap sales, though present, have been sporadic rather than consistent. Year over year, current buying momentum is much stronger than the respective comparable period in 2009 and 2010.

Under the cover of that continuous ping pong game of "will Greece default or will it not default," the Fed has slipped in its first real pre-QE3 trial balloon: "If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to [with more QE] because we do not want deflation"

THAT is why our interventionist Government/Fed has taken a wrecking-ball to the prices of commodities and gold/silver. Now we can expect to see "reduced" indications of inflation in the next Government-manipulated Producer Price and Consumer Price Index releases.

Make no mistake about it, although the current fundamental underpinnings are much worse than in 2008, the appearance of a financial and economic crisis - and subsequent policy response - is nearly identical. In order to make a big expansion in money supply politically palatable in 2008, the markets had to be set up so that Hank Paulson could scare the shit out of Congress, which left them begging for Fed stimulus. Per Mark Twain, history doesn't repeat but often rhymes, right? Expect another massive attempt to "shock and awe" the economy back to life.

Where this is "rhyming" with 2008 is that they took a serious wrecking ball to commodities and metals - especially gold and silver - back then, which was succeeded a few months later by the shock and awe monetary and fiscal stimulus that helped drive the metals back to their recent peak this year. Don't make the mistake of thinking that the Fed will do the right thing and let the system very painfully start self-correcting. Once inflation "expectations" have manipulated lower now that another wrecking ball was applied to gold and silver, the Fed will soon be begged by Congress and Geithner to crank the printing presses back up to full speed.

In case you missed these, here's a couple articles on data points that should help along the Fed's next move: In the latest poll, CEO's are less confident about hiring and the economy: LINK; and consumer confidence is near an all-time low: LINK. So the "expectations about a much weaker economy ahead are already in place.

And make no mistake about this, the Asian/Indian/Middle Eastern physical metal buyers are treating this latest price hit as a gift from the gods:

Physical demand right now is not just decent, it is exceptionally strong, said UBS in a research note, after observing strong buying from India and elsewhere in Asia, as well as robust retail demand for coins in Europe

Here's the LINK The one mistake you can make right now is to assume that the bull market in the metals is over. In fact, based on the variables that are driving this bull market, it has long way to go.

Wednesday, September 28, 2011

And I'm not talking about the University of Chicago (MBA, '91) way of thinking about economics. This is the political system that bred your President:

Earlier this month, The Chicago Tribune reported that 23 retired union leaders will collect $56 million from cash-strapped government pension funds — courtesy of a few well-placed lines that were quietly inserted into the state’s 1991 labor law (with no public debate or cost-benefit analysis). It’s the latest in a long line of flagrant abuses — handouts from corrupt politicians who continue to game the system for the personal benefit of a select, powerful few.

For six decades city government workers in Chicago have been granted “leaves of absence” enabling them to work full-time for the unions while retaining their city benefits (including generous pensions). While such an arrangement is patently unfair to taxpayers and should never have been adopted in the first place, some of the abuses that have occurred under its ever-expanding auspices are downright shocking.

That is the system that was the breeding ground for Obama-politics. Here's the LINK

Chicago/Illinois is probably the worst example, but every major city has budget problems, severely under-funded pension funds and hordes of overpaid, well-vacationed public employees. This is a system that is in a state of collapse...

In so many words, the German Finance Minister has told Geithner to go focus on the problems in the U.S. and that the U.S. ideas for Europe are "stupid:"

I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense...It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government...LINK

I have to say, Geithner must completely lack the ability to feel shame or embarrassment. He really is a somewhat unique animal in that regard. To be honest, I really can't believe he didn't withdraw from his appointment to the Treasury position after it was revealed he cheated on his taxes - repeatedly. And I really really can't believe Obama didn't remove him from appointment. And then how the hell did Congress confirm his appointment?

It's clear that Geithner is nothing but an empty, mindless man-slave for the powerful financial operators - guys like Robert Rubin - who clearly were the ones responsible for putting him in place at the NY Fed and then the U.S. Treasury in order to enable the massive taxpayer bailout of the big banks. Just another indicator for how corrupt our entire system has become - and on its way to eventual collapse...

Tuesday, September 27, 2011

Well worth watching. I think it's too late for anyone to save our system, but at least if Paul were elected President we could give it the old "college try." Here's the LINK - Part 1 and from there you can get the part 2 and part 3. Enjoy.

ain't that a shame? Congress reached an agreement yesterday to extending Government spending until November 18th. Breathe easy now, as the massive transfer of wealth from the middle class taxpaying public to the big corporate and financial elite can continue for another 11 weeks. Oh, and Obama can continue to borrow money on our behalf and give it to his wealthy campaign contributors under the veil of "green" energy investments.

And our joke of a Treasury Secretary continues to take brutal verbal beatings from various European leaders, who somewhat bluntly have expressed that he should keep his mouth shut about the EU and their finances as long as the U.S. financial situation goes unaddressed and continues looking even more catastrophic than that of Europe. These are the days when I really wish we had someone like Charles Dickens or Oscar Wilde writing daily commentary on this absurdity in order to at least help us stay amused...BUT, if you want to see how the public feels about our Government, take a look at the latest Gallup poll: "Americans Express Historic Negativity U.S. Government" LINK

If democracy were alive and well, and if our Government was actually "by the people and for the people," then Congress would have actually allowed the Government to shut down and stay shut down until something was done to address the rapidly deteriorating financial and political condition of this country:

49% of Americans believe the federal government has become so large and powerful that it poses an immediate threat to the rights and freedoms of ordinary citizens

But alas, the citizens of this country peacefully allowed democracy to be taken away from them - and gave up their civil rights - starting several years ago and through the course of several Presidential administrations.

One thing that HAS changed, rather interestingly, is the response by the gold/silver buying portion of the public - which is still well less than 5% of the investing public - to massive, gut-wrenching sell-offs in the precious metals like we are currently experiencing. For the first 8 or so years of this bull market, whenever the metals would have a wrecking ball taken to their prices, the metals-buyer would scatter like cockroaches in a NYC kitchen when the lights come on? (Ever see that? I had cockroaches in my first couple of apartments when I moved to NYC back in the mid 1980's).

The perfect example of this was in 2008. When the gold/silver sell off started in March, there was a little dip buying, but the buyers had pretty much gone completely into hiding for several months after the second takedown in July of that year. Contrast that with the behavior of these buyers the last couple of times around. In both April and this week, I've had several somewhat newbies ask me if they should be buying this hit. My answer: I am, gratefully. But don't take it from just me, check out these accounts of the buying frenzy that went on around the globe yesterday, which I borrowed from Ed Steers Gold and Silver Daily:

It was no surprise to me to see a big sales report from the U.S. Mint yesterday. They sold 15,500 ounces of gold eagles...2,500 one-ounce 24K gold buffaloes...and a very chunky 1,025,000 silver eagles. Month-to-date sales are as follows...65,000 ounces of gold eagles...10,000 one-ounce 24K gold buffaloes...and a whopping 3,325,500 silver eagles. Based on retail bullion sales that I know about in various parts of North America, September will be another strong month for the mint...but it certainly didn't start out that way.

The Perth Mint has been very busy this Monday morning with a lot of buying [but also some selling], however buying is outweighing selling by a fair margin [pun intended]...and the decrease in the AUD/USD has taken some sting out of the drop for Aussie investors.

I see this sell-off driven by leveraged “weak hand” money. In contrast, average investors [the real smart money] are looking at this as an opportunity to buy in or top up at cheaper prices. These buyers are “strong hands” and have been the ones who have been driving the trend all these years.

My bullion dealer here in Edmonton had another record day in bullion sales on Monday...even larger than the record day he had on Friday. It was wall-to-wall buyers all day...and the phone was ringing off the hook. Nobody sold an ounce of anything.

One way I do my own due diligence is to monitor the Denver craigslist, which happens to be a very active marketplace for gold and silver buyers. A week ago silver sellers were abundant. Last night when I checked, there were a few silver eagle sellers, but several posts from people looking to buy gold and silver. That may sound arbitrary, but I've been trading on and monitoring craigslist for about 7 years now. It's a good indicator of what the plebeians are doing in gold and silver (me being one of them).

The bottom line is that the percentage of people - albeit still small - that understand the need to move their phony fiat currencies into gold and silver is growing. And even more interesting is that the level of market sophistication among this group of the population is increasing, as is their understanding of the "game" being played by the Federal Reserve and the Government.

Monday, September 26, 2011

Here's a statement made by an independent trader in London interviewed by the BBC - it's hard to disagree with this assessment: "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!" He goes on to warn that you need to be prepared before the real shit hits the fan. You can see the 3-minute video at http://www.zerohedge.com/

Rest assured, of course, that you will never see a brutally truthful interview like that aired on mainstream network media in this country.

One thing I've been debating with a colleague is whether or not this current timeframe and cycle of events is going to repeat the same cycle as in 2008. If that's the case, it means there could be some more downside for gold and silver. HOWEVER, at this point it is my view that, because so many analysts and market participants are of the belief that we're in for a 2008 repeat, it will be a self-fulfilling prophecy - if you will - that 2011 won't be like 2008. In many ways the next 12 months will be significantly worse.

I will say that the public's continued ignorance about what is really happening - and ignorance about precious metals - continues unabated. Anectdotally I had a conversation with an acquaintance on Saturday who asked what I do for a living. When I told him he said "seems like a lot of people are into gold these days." To that I responded: "you'd be surprised how few people actually own any gold and silver - especially if you don't include GLD - nor do they understand why you need to own them." And to that he said: "well, count me as one of the ones who don't get it and don't own any." Poor slob. I then went on to hammer him quickly in a tennis match tiebreak 10-4...

But don't take any of this from me, read/listen to what James Turk has to say about this. King World News posted an interview with Turk over the weekend. Turk is one of the few analysts that I believe are worth paying attention to when they share their wisdom:

We're going through something - it's not just a cyclical problem that we're dealing with, we're dealing with a structural problem. And that's why what we're heading into is probably going to be much worse than what we saw in 2008. So, in that kind of environment, I feel very very comfortable owning physical gold and owning physical silver as well as the mining shares because to me they still represent good value and they have usefulness because you know they don't have counterparty risk when you own them...

Here's the link to that interview and I highly recommend taking the time to listen: LINK

The overnight hit in gold and silver occurred when the Shanghai metal exchange raised the margins for paper silver by 20% last night. However, we know from the premiums being reported out of India, Viet Nam and China that investors were buying up physical gold and silver at these lower levels. At some point - likely soon - the paper manipulators will once again be overwhelmed by the sheer size of demand for physically delivered metal.

So it sounds like Greece will be allowed to default and the bigger news regarding gold/silver is that the ECB is prepared to print plenty of money of keep the banking system from collapsing. Sort of like what happened here in 2008. That's why the LBMA raised margins on OTC gold forwards by substantial margin. They wanted to "flush" the market ahead of this. Ultimately this is uber-bullish for the metals. Don't let them shake you out of your positions. An even better move would be to man-up and buy even more Monday and save room to add more if they take it lower.

I was actually told by a friend that some big news that would explain the metals hit would surface either this weekend or Monday/Tuesday. He wouldn't give me details over the phone. His remark on last week's action: "who cares where they take the metals on the downside, six months from now they could be double where they are now....

Friday, September 23, 2011

It's always paid off following Sinclair's wisdom - it will this time too: READ THIS

We're at the point in the evolution of our system at which it is corrupt beyond reckoning, right down the Chicago-style political thug in the White House. Geithner has been laughed at and ridiculed all week in Europe. He has no shame because I would have gotten the hell out there already.

We've seen this this violent action before and it scares that shit out of everyone. But those who hold always come out ahead and those who add to positions come out even more ahead.

The more desperate they get, the more volatile the metals become. But remember, volatility works both ways. Even if you bought at the market in both gold and silver in March 2008, you are still roughly 65% better off today than you were in at the end of that brutal selloff if you just simply held on to your positions. Some of us actually bought some silver after it was artificially slammed from $21 down to $9.

I'm actually more concerned about what it is that they are setting us up for - i.e. what kind of really bad news is coming our way. We know empirically that the banking system, most State Governments and the Federal Government are de facto insolvent. But what is the next big financial volcano that's about to erupt?

Go do something fun this weekend and know that at some point between now and a year from the metals will much higher..

Dave in Denver: Now we've established that you can be bought, what is your price then?

Quote of the Week: "Treasuries are getting bought to insanity" - friend and colleague, "Jesse"

He's right. Most of the Treasury curve is yielding close to zero. That means that the prices of Treasuries can't go much higher. But there sure is a lot of downside. If you are "parking" your cash in bonds because they are "safe," you are taking on what will end being a tragic amount of risk. It's time to sell.

My thought for the week would be that something really really bad is coming our way. The last time the metals were taken down in a two-stage process like this current period was 2008 - March/July vs April/Sept this year. The big take-down in 2008 was followed by the de facto collapse of our banking system and the roll out of the massive money printing injection by the Fed and debt-fueled fiscal "stimulus" by the Government. Both actions merely effected the massive transfer of wealth from the Taxpayers to the financial and political elite. They still have more wealth to confiscate before this over so expect more of the same - this time with a different color of lipstick shmeared all over the cancer and HIV-infested pig of a system.

HAVING SAID THAT, if you merely only held your gold/silver from their peak prices in 2008 until now/today, you would have achieved a 66% increase in your real wealth in gold ($1020 to $1700) and a 57% increase in silver ($21 to $33). Got any other part of your portfolio that has performed like that? No way. So, are you top-ticking the market it you buy some more today? I don't know short term. But I would be willing to bet that a year from now that gold and silver will be much higher than where they are today. Hold tight and be right.

Here's an excellent excerpt of an interview with Marc Faber. I often disagree with him on how to play the market but he is someone whose macro analysis is worth looking at. He clearly horrifies the Fox Business retards with his vision, but - unfortunately - I am 100% he's correct:

Have a great weekend and please try to enjoy what you can, as much as you can, for as long as you can.

Thursday, September 22, 2011

Several people have asked me why gold didn't hold its own or move higher in a "flight to safety" when the market went into a swan-dive. It's a good question and the best quick answer is to say that you can't look at any one intra-day timeframe comparison of anything and think that that's the way it is. In fact, when a broad market makes a big move one way or the other, typically there will short term correlation with that move in every market. The simplest explanation for that is that hedge funds tend to drive market direction on a short term basis because of the way their computer models are programmed to move money in and out of markets. That's just the way it is. Typically hedge funds will blindly sell anything that's not nailed to the floor on days when there's a sharp sell-off in the stock market and move into Treasuries. And today everything is down except inverse ETF's and Treasuries LOL.

But there's also another explanation for today's response in the gold/silver markets. If you are ignorant or naive enough to believe that the Fed/Govt does not intervene in or manipulate the markets, especially the dollar anti-christ gold market, you can go back reading to Mish or Denninger or Fleckenstein. BUT, if you have access and can pull up an intra-day trading chart of gold and silver futures, you will note that a cliff-dive in silver was initiated around 2:30 a.m. Denver time, which coincides with when Honk Kong and most of Asia closes. Since Hong Kong primarily deals in the physical gold/silver markets, we can only conclude that an avalanche of paper silver was unloaded in London as soon as the highly supportive physical buying markets were closed. Ditto for gold. As most of you know, typically the anglo bullion banks, when they want to try and inflict damage on the metals, begin their paper dumping operation in London and continue in NYC at the 6:20 a.m. (Denver time) Comex open. And of course my charts show another selling waterfall occurred leading up to, and inclusive of, the Comex open.

From this we can conclude that the big sell-off in gold was initiated by the traditional paper futures players, the bullion banks like JP Morgan, Baclays and Goldman Sachs. This also serves to trigger the moving average sell-stop orders programmed into big hedge fund black box trading computers per my first paragraph. I'm 100% sure this is why gold and silver sold off hard with the markets in general.

So what happens from here? I dunno - who's John Galt? What I do know is that going back to that day on May 6, 2010, when the Dow plunged 1000 points intra-day, gold/silver/mining stocks actually started to stage a huge rally when the Dow made the last 500 points or so of that plunge. I also believe that the Fed would like to try and get the price of gold and silver a lot lower before it inevitably rolls out more QE. Remember, in our system of fiat currencies, when gold moves sharply higher, it's our best warning indicator that the system is failing. If everyone starts to move into gold because of this, all of the lies that have been promoted by the Fed and our Government over the last 40 years (and longer) will come of the closest in one big horror show. Can the Fed accomplish this? I doubt they can given the massive ongoing transfer of fiat currency into physical metal going on in the eastern hemisphere.

My best advice with regard to the metals and mining stocks would be to follow Jesse Livermore's best advice, which is to "sit tight and be right." If you have been waiting on the sidelines for an opportunity to double-down or add to positions, now would be a good time to start doing that. Don't forget, all of the variables that are driving capital into the precious metals are getting stronger by the day. I don't how much they can manipulate the metals prices lower, especially with the well-documented massive physical accumulation going on in India, Asia and now the Middle East, but I do know that at some point between now and 6 months or a year from now that gold and silver will substantially higher and those who own a lot of physical gold and silver will be very thankful that they do.

Wednesday, September 21, 2011

I don't have anything to say about it other than that the circus leading up to the decision announcement is retarded. I also have to say that Steve Liesman has to be the biggest buffoon in financial reporting. His performance makes Jerry Springer and Cornel West look brilliant...

At any rate we all knew what the Fed, for the most part, was going to do today. The question is, when will the real printing re-commence? My partner opined: "they don't have much choice." To which I said: "yep, either print or don't print - if they don't print the system collapses." So that's where things shake out.

Meanwhile. beneath the overflowing pomp and circumstance of today's U.S. version of Kabuki Theatre, please take note that Greece has finally implemented a series of austerity measures: LINK I don't know if those do a lot in the grand scheme of things over there, but it sure is step in the right direction that our Government refuses to take. I would advise to cover all shorts in the euro...

As I've outlined in several previous posts, it boggles my mind that everyone in this country is focused on what is happening in Europe and predicting the end of the EU, euro etc, when really the problems in just California alone are bigger than Greece, Italy, Portugal and Spain in aggregate. Then throw in Illinois, New York, New Jersey, Ohio, Pennsylvania....And then there's the Federal Government. Because the EU is set up the way it's set up, they can't just print money at a whim or issue EU "umbrella" debt and thereby keep in business an individual country this is going bankrupt, the way our Government enables States like California to avoid default. They can systematically force austerity. We don't have that ability in this country. Eventually the global markets, of course, will force the issue on the U.S. and it will be be really ugly.

I hope everyone takes the time to the research piece I've linked below, which is a summary of a report published almost monthly by an organization called LEAP 2020. I've been reading their freebie stuff for several years and most of their analysis has been remarkably accurate over time, although sometimes early on predictive timeframe. They explain how/why Europe is being used by DC/Wall Street/London as device to keep everyone's focus off of the real problems in the global financial system:

But let’s come back to Greece and what is beginning to be a "very repetitive old story (3)" which, as we have already explained, returns to the front of the media stage every time Washington and London are in serious difficulties (4). Moreover, coincidentally, the summer has been disastrous for the United States which is now in recession (5), which has seen their credit rating cut (an event deemed unthinkable by all the "experts" only six months ago) and exposed their political system’s state of widespread paralysis (6) to an astonished world, all whilst being incapable of putting any serious measure in place to reduce their deficits (7). At the same time, the United Kingdom is sinking into depression (8) with riots of uncommon violence, an austerity policy that fails to control budget deficits (9) whilst plunging the country into an unprecedented social crisis (10), and a ruling coalition that doesn’t even know why it governs together against the backdrop of the scandal of collusion between political leaders and the Murdoch empire. No doubt, in such a context, everything was ripe for a media relaunch of the Greek crisis and its corollary, the end of the Euro.

Here's the LINK Please take the time to relax and read that piece. It conveys a lot of the same views and truths that I try to convey with this blog, but does a much better job of it.

One thing they point out, that I forgot about and does not receive much media attention, is the financial nuclear trigger built into the debt-limit extension agreement. In November this year, a "special" Congressional debt committee has to come up with a bunch of budget cuts, otherwise automatic budget cuts kick in. This could be disastrous for the financial markets if the same movie from August is replayed at the end of October. Of course, the Fed can always crank up the printing press and all will be forgiven...

Tuesday, September 20, 2011

Especially the ones that are really well-managed: Hecla Mining announced today that it is going to set its quarterly dividend payout policy based on the average price of silver realized by the Company during the quarter. Here's the formula they will use: LINK This is a huge statement about Hecla's confidence in their ability to continue growing their business (find new resources) AND their ability to manage their operations efficiently. Further, yesterday Newmont announced that it will link its dividend payout to the price of gold AND the CEO said he thought the price of gold would keep rising. And today, at the Denver Gold forum, Eldorado Gold announced a formula that would keep its dividend yield at 2%. Expect that this will become a trend for the sector. This is the kind of dividend policy every company should implement.

But for me, and even more important to my investment thesis for holding the majority of my net worth in metals and mining stocks, is what this action portends for the industry as whole. Since most people do not study history, you should know that back in the 1930's, Homestake Mining - one of just a few publicly-held mining companies - saw its stock price go from $80 in 1929 to $495 in 1935. It also eventually paid out as much as $56 per share in dividends by 1935, including several monthly special dividends. How many of you own tech stocks or beloved industrial stocks that have dividends yielding 11% or have a 70% dividend/cash flow payout ratio? LOL (that's strictly a rhetorical question).

Of course I don't expect history to repeat exactly like this, but I do expect that the large cap mining companies that want to see their stock price really appreciate in price will soon follow Hecla's lead. I also expect that over the next few years we will see many of these stocks begin to have large dividend payouts and will be core positions in many mainstream mutual funds. I will leave it to your imagination to think about what this will do to the stock prices of the large caps.

In other words, I expect that the price gains experienced in the 1930's by mining stocks like Homestake will be dwarfed by the gains we will see in the sector this time around. Just think about how many trillions in excess money supply are sloshing around the world's financial system now vs. back in the 1930's, when currencies were directly linked to gold...

Anyone recall Buffet being on the ballot? What's even more troubling about this is the fact that Buffet sponsor's fundraising events for Obama, the most most recent being a $35,000/plate dinner in NYC after Buffet negotiated a "tails I win, heads shareholders lose" deal to invest in Bank of America.

Is this how our democratic system is supposed to work? Everyone happy they are now controlled directly by Warren Buffet's view of the way things should be?

On another note, the Financial Times highlights another reason the fundamentals for gold keep getting better. Many of us have known that Central Banks became net buyers of gold - after decades of selling and rehypothecating their gold - in 2010. The more mainstream media is finally catching on to this:

We’re going back to a time when gold is seen very much as money,” Jonathan Spall, director of precious metals sales at Barclays Capital, told FT.com in a video interview. “It has been a complete reversal of the attitudes we saw during the 1990s LINK

Interestingly, the bulk of the CB buying is from Centrals Banks in India, Asia, the Middle East and South America/Mexico. ECB banks are buying very little but their selling stopped over the last year. Where's the Fed on this? In fact, let's have a look at the gold that owned by the citizens but safekept by the Fed. Where is it?

Friday, September 16, 2011

"It appears that India wants to buy the entire world's gold supply at the right price" - John Brimelow

This is about an 18 minute interview by James Turk of John Brimelow, someone who most you have never heard of but who provides invaluable reporting/information on the gold trading globally - specifically on the massive physical buying markets in India and Asia. I access the publicly available commentary by Brimelow in the nightly Midas report at http://www.lemetropolecafe.com/ It is one of the key tools we use to manage our fund.

If you are interested in learning about some of the key variables driving the trading price gold, you need to listen to this: LINK

Or at least try to? Here's a quote from Paul Volcker from a 2004 interview, in reference to January 1973 when the dollar was devalued against the yen:

That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.

- Paul Volcker, "Nikkei Weekly" 2004

And here's a famous quote from Alan Greenspan in 1998, when he was Chairman of the Fed: "Central banks stand ready to lease gold in increasing quantities should the price rise."

Those two quotes should be plenty of proof that - as I said in yesterday's post - the ECB, SNB, BOE and Fed acted in concert to try and suppress the price of gold while the SNB devalued the Swiss franc and the group of central banks collectively put together a bailout liquidity facility in place to keep the EU banking system from collapsing.

At some point gold will have a "snap-back" reaction in its price that could be quite breathtaking. The massive emergency funding programs being put in place will eventually have to be monetized by central banking printing presses and transferring liabilities from the banks to the Taxpayers - just like in 2008...Someone I know of who is in a well-connected position said this last week: "Do NOT keep any money in money market funds." (Money market funds - most of them - have heavy exposure to short term European debt - corporate and sovereign - they also have exposure to the rapidly deteriorating mortgage-backed paper in this country).

It's going to get really interesting over the next 3 months. Buy some more gold, make some popcorn and pull up a comfy seat - the entertainment value should be spectacular!

As the Taxpayers who were fleeced for over $500 million dollars, we deserve the Truth. I doubt Obama's Presidency can handle it if the Truth gets confirmed. The Treasury Inspector General has opened an inquiry into this. If you think that investigation will be anything other than a white wash, then you also probably still believe that Tim Geithner never cheated on his taxes and you also believe in the tooth fairy.

Thursday, September 15, 2011

I don't have time to explain the details, but essentially over the past few days the Fed, ECB, Swiss National Bank and Bank of England have been working in concert in order to make liquidity available to prevent the European banking system from collapsing - similar to what happened here in the autumn of 2008. To simplify things, what has happened is that European banks have dollar liabilities (shorter term loan funding of various sorts denominated in dollars) that are being used to finance non-dollar income-producing assets (mostly denominated in euros). Greek and Italian sovereign debt securities, for instance. The assets are falling way short of being able to support the cash flows required to fund the liabilities (repos, for instance). So, the European banking system is at the brink of "freezing up" and collapsing.

You can read about the details HERE In addition, our Fed has made $500 billion swap "liquidity" facilities available for use - this has been in place for awhile. And even more startling, it turns out that some big U.S. banks have been engaging in private market repo transactions with some big Euro banks, who have been using crappy collateral. Zerohedge sourced this article: LINK

I was actually stunned when I saw that because it shows how desperate European banks have become for cash. But why are the big U.S. banks willing to take crappy collateral in exchange? Traditionally repos are done using very short term Treasuries or Agency debt as collateral. Why would U.S. banks be willing to take this shit to keep Euro banks solvent? And why is the Fed extending half a trillion of Taxpayer-backed funding to keep the Euro system from collapsing?

I don't know for sure, and we'll never know until everything collapses, but I suspect that if countries like Greece and Italy and Spain collapse, then the big too-big-too-fail Euro banks collapse. And if that happens, I suspect that our too-big-to-fail banks - primarily Citi, JP Morgan and Goldman - would collapse under the weight of a very large amount of credit default derivatives and interest rate swaps that require Euro bank counterparties to be able to fund in the event the default parameters are triggered. In other words, U.S. banks and our Fed are just as desperate to keep the Euro banks alive as are the ECB/SNB/BOE bank members desperate to stay alive.

This scenario is startlingly similar to what happened right before Lehman was allowed to tank, which triggered the big bailouts here. Only this time the scale is Lehman x 50 or 100 because it includes a couple of countries and all of the U.S./UK/European/Swiss To-Big-To-Fail Banks. I also believe that what I just surmised has a very high probability of being pretty close to what is actually going on. It also is interesting to me that some big, anonymous banks/Central Banks are lending/swapping out their gold holdings in order get their hands on badly needed U.S. dollars to meet dollar liquidity needs: LINK

What would be frightening to me with these gold swap transactions is that there is a high probability that a lot of this gold being leased out may actually be coming from the same HSBC vault that "safekeeps" the GLD gold. HSBC is one of the largest LBMA depository banks, which contain a large percent of the world's 400 oz. gold bars. This is exactly why Hugo Chavez wants Venezuela's gold removed and delivered to Venezuela. Remember the CNBC video in which Bob Pisani is standing in the HSBC vault and supposedly picking up a bar from the GLD "allocated" section? Remember how that bar was NOT actually a bar on GLD's gold list but was purported to be a GLD bar? More than anything else you read, that event underscores why you can't trust ANY of the gold in that HSBC vault and you can't trust that GLD truly has 100% backing of unencumbered bars (i.e. leased out or used in derivatives deals).

I said in my original GLD research report back in Feb 2009 that one day we'll wake up and the price of gold will be up $200 and the opening price of GLD will be down 50% (you can see that report HERE ). What is happening right now in the financial system is exactly the kind of scenario and events that I envisioned would cause GLD to ultimately be exposed for what it is. We could be closer than any of us realize to this type of situation actually occurring. In other words, if you own GLD and think that you own gold, you don't. Get rid of your GLD and buy the real stuff.

Finally, do not let this latest 2-day smack on the price of gold shake you out of your positions or scare you off from buying more physical gold/silver. This hit on gold, I believe, was nothing more than a coordinated Central Bank intervention in order to get the price lower ahead of all of the above massive fiat/liquidity operations. This is what happened in the summer of 2008 as well. It also means that the global financial system is in far worse trouble than anyone not inside the Central Bank nerve centers realizes.

Wednesday, September 14, 2011

A new poll conducted by Bloomberg shows that Obama's approval rating plummeted to a new low after his big prime-time rollout of his "I'm coming down from the Hill to save America" jobs/economic stimulation proposal last Thursday. Opps - guess that idea backfired.

And now Solargate is heating up even more. I see Fox News finally grabbed hold of this story - about 10 days after the fact. But that should be good for roiling up the network's millions of slavish followers. More interestingly, the Washington Post has uncovered some emails which further reinforce the allegation that heavy pressure was put on OMB to approve this loan: LINK These emails directly contradict initial rebuttal statements made by the Obama team in response to the allegations. Ironically, the Bush administration nuked the Solyndra loan application shortly before El Hefe took over the White House...

In addition two Solyndra officials, including the CEO, had been scheduled to appear before a Congressional hearing today but postponed their appearance until next week without giving an explanation. Smells to me like they want to see what other evidence of foul-play emerges so they can orchestrate their story with the Oval Office. Maybe Obama will lend them his teleprompter...

Finally, I came across this little gem this morning - a news report in which the White House intends to crack down waste and fraud. This one gave me a hearty laugh. They are so anxious to do this that they are going to give 42 States $192 million to "streamline collection of unemployment claims data." Huh? Is this for real? How about if Obama and his "peeps" hold up a mirror to themselves to look for waste and fraud. The report says that Obama thinks he can save $2 billion over the next five years. That is a complete joke considering that the Government borrows over $5 billion a day just cover the amount it spends on a daily basis. Here's the LINK What the hell is a proposed $2 billion - and that will likely never materialize - over 5 years going to accomplish?

Tuesday, September 13, 2011

I was chatting with a colleague yesterday who was talking about the tax rates and various aspects of taxation as means of raising revenues or stimulating the economy. I threw napalm on that discussion by pointing out that splitting hairs over the marginal rate isn't going to do anything. If we completely eliminated the Department of Defense - which happens to be the largest employer in the world - we would still be running a spending deficit funding everything else.

Later yesterday I was having a heated debate about fiscal policy with someone who is one of the brightest, most well-read people I have ever known, including some highly decorated professors at the University of Chicago. This person also happens to be a Keynesian/quasi-socialist who believes that the Government can fix things. It seems impossible to be well-read in general, and about history in particular, and still be a Keynesian, doesn't it?

At any rate, the second person remarked that the Government needs to raise taxes to pay for its spending and that we need to sharply reduce defense spending. I agree 150% with the latter. However, I pointed out the bulk of economic growth since we went off the gold standard in 1971 has come from the Fed increasing the money supply and from massive debt accumulation, both private and public. I also pointed out that studying the effect of changes in tax policy are very difficult because changes in the marginal tax rates are always piggybacked with more loopholes for those who can afford to have the loopholes legislated. Moreover, just increasing the rate of taxation will primarily affect the shrinking middle class and further depress consumer spending.

A good example of the uselessness of looking at tax policy would be a quick review of the huge reduction in taxation implemented by Reagan. The economy did indeed take off in the 1980's after this tax cut. However, the Reagan tax cuts were accompanied by a massive increase in the money supply and an even more massive increase in private and Government debt accumulation. So you tell me - did the tax cuts stimulate the economy or did reckless monetary and debt-issuance standards create a "boom?" Recall that the first two of many financial bubbles were spawned in the 1980's: junk bonds and real estate/mortgage finance.

As this chart below shows, compiled from data available on the St. Louis Federal Reserve Bank website - which is a fabulous source of data - THE primary drivers of GDP growth have been the unbelievable growth in the amount of both public and private debt outstanding:

This chart shows GDP growth, Government tax revenues and expenditures, money supply and total Government/private sector debt outstanding, where private sector is corporations and individuals. The red line is the M2 measure of money supply and the bottom two lines are Government receipts/expenditures.

I would actually argue that because debt is created using Fed monetary reserves as its "fractional" basis, that the amount of debt outstanding is actually a "de facto" component of the money supply. The pieces of paper called "debt" actually circulate in the economy and create the same expenditure effect as do the pieces of paper called U.S. currency. The only difference between debt and equity (equity is cash in this example) is that debt contains the legal promise to "retract," or repay, the amount borrowed, whereas equity (cash) would have no such legal obligation. HOWEVER, as we have seen, this legal obligation often gets either restructured and reduced or transferred from the private sector to the Government (i.e. socialized). Therefore, since this debt never seems to get paid back, except in small amounts by individuals, it functions as a money supply surrogate.

I'm sure pure Keynesians like Krugman would try to slash my view with fancy arguments. But put to the test of reality, something of which people like Krugman have NO experience or knowledge of, my view is correct.

As you can see from the chart above, tax receipts (based on the rate of taxation) have almost no correlation with changes in the GDP after 1971 - and really after the U.S. starting bastardizing the Bretton Woods agreement in the 1950's by issuing more debt to foreign creditors than it had gold to back to that debt.

One more chart of note is the one below that shows just the rate in Federal spending and rate of growth in Federal revenues (tax receipts) since 1971:

(click on chart to enlarge)

As you can see the rate of Government spending in excess of revenues has been increasing at a parabolic rate. I don't want to discuss whether or not the rate of taxation is good or bad for the economy. But the first graph shows that it is likely irrelevant in a system that is substantially dependent on debt accumulation for its source of "growth." The second chart shows that in the context of Government spending deficits, the spending side of the equation is the true source of the massive problem with our fiscal policies.

And just for the record, Paul Samuelson, the true icon of Keynesian pornography and the author of the world's best-selling Keynesian academic textbook on macroeconomics, commented in the 1960's that Social Security is a big Ponzi scheme but that it could last forever because he assumed infinite economic growth: LINK - (for the record, my macro economic course in college did not use Samuelson's book nor did the professor pay any heed to the Keynesian Fallacy).

So the REAL problem is the overall level of debt that has accumulated at all levels our system. As the first chart shows, it now requires $5 of borrowing by both the Government and private sector combined to generate a $1 of economic growth. And in reality that Government-reported $1 of growth is overstated by corrupted data manipulation (that this is true is largely accepted by almost everyone except those who work for the Government or CNBC or Wall Street).

The golden truth is that not only has the accumulated amount of debt become impossible to repay by relying on some kind of real economic growth miracle, but the consequences of rectifying this situation are truly horrific if you think about what it will take and what the implications are for the borrow-and-spend-what-you-can-never-pay-back American way of life...

Monday, September 12, 2011

In a deepening scandal that threatens to ensnare members of the Obama administration, PricewaterhouseCoopers found that the company's finances “raise substantial doubt about its ability to continue as a going concern.” Two months later the company was awarded the loan under a green jobs program.

It's crystal clear here that Obama rewarded one of his biggest fundraisers with over $500 million in Taxpayer money to invest in a company that was deemed to be at risk as a going concern AND Obama fast-tracked this deal, skipping the standard procedures for loan approval.

Based on the poor choices we have for opposing candidates, I'm sure Obama will get re-elected anyway. The voters don't care if this guy is the guy who lets the Government rob us blind. I just hope Congress uses this as its reason to deny the massive jobs proposal.

Saturday, September 10, 2011

Please read thru this next-step description of the busted solar energy company that essentially is about to steal over $500 million of Taxpayer money. Solyndra is controlled by one of Obama's big financial supporters - Tulsa hick George Kaiser. I know quite a bit about finance and at the very least the Taxpayer "green" investment money should be made on a senior secured basis. This deal was set up to enable Kaiser to take a shot on the business for free and now steal $850 million of book assets for less than $100 million.

Here's the account of this fraud in process as presented by Bruce Krasting: LINK

It is way beyond any stretch of faith that DOE people representing the Taxpayers in this deal were acting in their capacity as a fiduciary. As Krasting points out, many of them are trained attorneys. This deal was put together to in a way that would enable Kaiser to steal Taxpayer money. I presented a blog earlier this week that shows how Obama knows about this deal, gave his blessing and rewarded a large contributor. Obama is supposedly a Harvard-blessed and trained legal mind. As a leader he should be in a position to prevent this kind of theft. He FAILS again.

This is EXACTLY why the Government needs to be cut way back. To let Obama have another $450 billion of Taxpayer money to sprinkle around to his supporters would be one of this century's great tragedies.

Friday, September 9, 2011

We have a monetary system that is accountable to no one and that’s a very good start. If you think about it, the way that the monetary system is structured, the government at this point can literally spend money on anything. They talk about capping the federal deficits and all that, but they’ll get past that in no time at all.

That quote is from a must-read interview: LINK Please read this so you are not just hearing this truth from people like me.

I didn't bother watching The Big Speech last night, mainly because I had a competitive tennis match (which I won) but I would have found something otherwise productive or value-added to do with my life in lieu of watching a snake-oil salesman get in front of the nation and put out a program of massive Government spending that is nothing more than an enormous attempt to buy votes from what is now his largest constituency: the rapidly growing and large segment of the population that is dependent on direct Government transfer payments.

For anyone not familiar with the details of the prosposed "stimulus" program, a good summary can be found HERE (Link) The most ABSURD idea is his proposal to spend $105 billion on school modernization, transportation projects and vacant land rehabilitation. Vacant land rehabilitation?

To be sure some of the ideas are based in good intent (I guess). Like updating schools and keeping teachers to work. But these are the luxuries of a country that can easily afford programs like that. Not the vote-buying effort of the failing President of a country with spending deficits and debt obligations that are beyond manageable and growing everyday - at an accelerating rate. Vacant land rehabilitation?

The proposed spending cut "off-sets," which is the part that Obama promises will "off-set" the cost of the Government's funding of his massive proposal, would occur over the next decade. Quite honestly, it takes brass balls for someone who just transferred $500 million of Taxpayer money to the failed solar company of a wealthy campaign contributor to get up in front of the American public and ask them to believe in the tooth fairy. Seriously.

There is no easy fix to our country's ongoing systemic failure. I have said for many years that we need a financial and political "do over." The former would entail figuring out a way to "re-set" the nation's debt-balance to zero, which will unfortunately require a massive decline in the standard of living for everyone but the most wealthy (those with enough ready-cash to own their own Congressman or President - Buffet, for example). This will never happen without one big systemic collapse. And a political "do over?" Unfortunately, if put to the test of human history, these never happen without a revolution or war.

To end with a note of humor, I thought I would put in a video link to what it was probably like for Obama to learn about the business of Wall Street after he was elected, since he had absolutely no real world work experience in his entire life:

Thursday, September 8, 2011

I haven't seen anyone refer to it as "Solargate," but that's what it should be called. Last month I mentioned another massive Obama policy failure when a solar start-up called Solyndra took a dirt nap. It turns out that Solyndra is controlled by George Kaiser, an Oklahoma-based zillionaire and huge monetary contributor to Obama's Presidency. If you recall, Obama apparently pulled strings and went around legal protocol in order to give over $500 million in Taxpayer funding to Solyndra.

It also turns out that there's a direct connection, despite denials, between Kaiser and Obama and this $530 million Taxpayer gift to Solyndra. Kaiser denies discussing Solyndra with anyone in the Oval Office even though Obama made two separate trips to Solyndra's manufacturing offices. You can read about this skulduggery here: LINK Furthermore, Solyndra officials and investors made at least 20 trips to the White House between March 2009 and April 2011. How about if someone directly asks Obama if he ever had conversations with Kaiser about Solyndra? A good accounting of Solyndra/Obama connection is here: LINK

Finally, the FBI is raiding Solyndra. According to a company spokesman:

Miller said the company is "fully cooperating" with federal officials. He said he did not know the purpose of the search, but he speculated it could have something to do with the $535 million in loan guarantees the Department of Energy awarded to Solyndra, a company President Obama visited in May 2010, touting the company as the wave of clean technology and the future for alternative fuel sources.

Here's the LINK The cynical side of me is wondering if Team Teleprompter ordered the raid in order to seize and destroy any possible documented link between Obama and Kaiser. You think I'm nuts and the Government doesn't destroy documents illegally? Go read my post in August about the SEC destroying thousands of docs, some that might have been used to nail Madoff a lot sooner. Once again I would like to see ALL of the documents at Solyndra put into a lock-box and have a completely independent firm conduct a full forensic accounting. I want to know where that $530 million went and I want to know just how cozy this Oklahoma redneck and Obama really are.

Have previous Presidents engaged in this corrupt behavior? They all have. BUT Obama specifically got elected on the promise of changing DC's old ways and cleaning up the vile cesspool of total corruption that is Washington DC. On that account Obama has FAILED.

And now Obama wants to get in front of the country and ask the Taxpayers to support him on spending $300 billion of OUR money to create jobs. After Obama's track record of corrupt waste and failure, not only do I hope that Congress denies this request but I hope the public starts screaming for more accountability and truth - because the promise of that upon which got Obama elected has been appallingly and tragically broken...

Wednesday, September 7, 2011

One of George Orwell's primary propositions is that eventually a large, overwhelmingly controlling Government gains the ability to control the perception of the majority of the population. I thought about this idea when a commenter asked my view on the Swiss franc. I wasn't going to post on yesterday's Swissy deval because I knew the topic would get trampled on ad nauseum by a lot of other bloggers, but I ended up liking what I wrote in the comment section so I turned it into an easy post for today. Here is my view on the Swiss franc situation:

What Switzerland did - and has been doing for several months - is effect a currency devaluation just like every other big economic country, only they have done it in a short period of time. The U.S. has been slowly devaluing its currency since 1971 (over 80% since 1971, something like 96% since the founding of the Fed - I believe those numbers can be found on the Fed's website).

All the Swiss Government did was further confirm the Von Mises proposition from 1936 in which he said that a global system of fiat currencies would eventually end up in a devaluation race.

You can't do this in a currency system anchored by gold. When you have collapsing systems represented by fiat currencies and the Governments are tying to protect their economies, it's really kind of a "prisoner's dilemma" of sorts, if you recall that idea from your Econ 101 class in college. I don't blame the Swiss, all they did was join in the currency wars with a big splash. At least they announced their intention rather than continuously regurgitating up this "the U.S. has a strong currency policy in place" bullshit that we've been getting from Geithner...

It also further confirms the bull market in gold/silver is still young and has long way to go.

He followed up with a comment about wondering if he owned too much gold but that he had unloaded his Swiss francs before the pummelling. It occurred to me that a lot of people have used and still use the Swiss franc as a safe-haven investment. But why is this? Up until May 1, 2000, the Swiss franc was backed by gold. Up until that point I can for sure understand why it would be a safe port in an economic storm. BUT, the Swiss Government removed the backing on May 1, 2000 and the Central Bank started selling its gold. So why do people STILL view it as a safe-haven? Quite frankly, what happened yesterday demonstrates, live, in real-time, with real money why fiat currencies ARE NOT safe-havens. NONE OF THEM. Got it?

Here was my response to his inquiry:

I have 90% of my net worth in the metals/mining stocks and I have for 10 years. Embry and Eric Sprott say they also have 90% (many multiples greater than mine lol).

The thing is, we KNOW that every paper currency is devaluing and EVERY single country has the same fundamental problems as the U.S. Even Canada and Australia, which are currencies some people ask me about. The Swiss took their currency off the gold standard many years ago. At that time it no longer became a flight to safety currency. Yet, many people still think of it that way. Incredible how powerful "perception" is, huh? The big Swiss banks are in as bad of shape or worse shape as the U.S. too-big-to fail banks. There's no reason to invest in "Switzerland" any more than there is to invest in the "U.S.," which means staying away from the piece of paper which represents the national stock - the currencies.

We know that many investment "geniuses" got their ass handed to them yesterday because they failed to understand what gold/silver really are and why they are the only true flight-to-safety currencies in the world and have been for 5,000 years. They only have themselves to blame because all the research and proof is at their fingertips using the internet.

More startling is to think about how powerful it is for the Government and media (CNBC) to have the ability to "shape" the general public perception of gold and the Swiss franc. It's really horrifying when you think about it. All this time most spectators and investors have perceived that the Swissy is a safe-haven and that gold is a "barbarous relic" (Keynes - wrong again) and in a bubble. And now for the past 24 hours Western central banks and Governments are trying to reinforce this perception by manipulating the price of gold lower. It won't work just like it hasn't worked for the last 10 years. We have used the hit on gold to redeploy some of the cash we raised going into the last couple of weeks of August. We'll put more to work over the next few weeks. I hope they keep trying to reinforce the gold perception because it makes it cheaper for us to buy.

It would behoove all of us to reflect on what other major areas of our life the Government wants control our perception...

Tuesday, September 6, 2011

"A socialist eventually runs out of other people's money" - Margaret Thatcher

Someone asked me what the hell Operation Twist was this morning. It's essentially one of the Fed's "tools" that it thinks it can use to try and stimulate the economy by making a concerted attempt to lower medium/long term interest rates and stimulate housing and business borrowing. The way it works is the Fed will attempt to "flatten" the Treasury yield curve by going out and buying up Treasury bonds in the middle and long part of the Treasury curve (5-30 years, mostly in the 7-10 range where mortgage rates are based).

In researching the topic in order to make sure I wasn't oversimplifying or erroneously describing what it is, I googled the term and came up with an interesting link about Operation Twist from Nowandfutures.com which attributes this "Operation Twist" idea back to the Kennedy Administration and its desire to get interest rates lower in order to lower the balance of payments deficit at that time. Here's the essay for those interested in the historicity of fiat currency and Government/Fed intervention in the markets: LINK

In a "twist" on the methodology used by the earlier Fed, which sold short term Treasuries and bought long term Treasuries, I'm surmising that the Fed this time around will try to pull down interest rates and flatten the curve solely by buying the longer paper. I say this because it already has in place a zero-interest short term rate policy thru 2013, and thus I do not expect the Fed to be unloading short term paper. You will hear some fancy lingo like "increase the duration" of the Fed's Treasury portfolio, which simply means the Fed is letting the shorter term holdings mature and it's rolling that money into intermediate/long Treasuries.

Does this mean that it's time to buy longer-maturity Treasuries? No. Like any other publicly traded market, the information that the Fed will likely do this is largely already priced into the market. Don't you think, given the amount of "telegraphing" that's been done on this - and the fact that Pimpco's Bill Gross has said he may buy intermediate Treasuries after dumping all of his Treasuries six months ago - that the big institutional money has already anticipated the Operation Twist event? In fact, this will be a money-losing trade for the Fed/Taxpayer because, in all likelihood, we are at the bottom of this secular interest rate cycle and at some point the price/yield of Treasury bonds will reflect the true rate of inflation and dollar devaluation that is coming.

Moreover, the Chinese and other big Treasury holders will likely use the Fed bid as an opportunity to dump big blocks of their holdings into the market, as they continue to make good on their publicly stated promise to diversify away from holding U.S. dollars.

I'm assuming the inquiry referenced above occurred because someone received a call from either their broker or their genius financial advisor who said now is the time to buy longer-maturity Treasuries in order to pick up some extra interest income and take advantage of the highly anticipated Operation Twist implementation. Sorry, it's too late. If your broker tries to sell you an intermediate Treasury ETF like TLT, hang up. If your financial advisor tries to convince you to buy Treasuries, tell him to move you into cash so you can move your account to someone who understands gold. Be careful because this Fed operation will be a marketing tool used by brokers to try and generate commissions. By the time retail brokers/advisors are trying to unload ideas on the public, it means the parent financial firm has already positioned the security and is now looking to book profits via the retail distribution network (brokers/advisors).

Circling back to the original question leading to this blog post, this is how I answered:

"Operation twist" is an attempt by the Fed to lower medium/long term interest rates by pegging the short term rate to zero and then going out and buying longer-date Treasuries. It's meant to be an extension of QE2 and supposedly can be implemented without the Fed having to expand its balance sheet (printing money). It's called a "twist" because the yield curve is normally upward sloping - i.e. the longer the maturity of Treasury bond, the higher the yield. But the idea is that the Fed can "twist" the yield curve into a "flatter" shape.

What's going to happen next? 1) Obama announces a $1 trillion infrastructure spending program. 2) Obama also announces that the Govt will use Fannie Mae and Freddie Mac to refi $1 trillion in troubled mortgages at 4%. 3) It just so happens that the Fed has $1 trillion in FNM/FRE mortgages. Those get refi'd and moved back to the FNM/FRE/Taxpayer balance sheet and it enables the Fed buy $1 trillion in longer-dated Treasuries to try and lower rates. 4) The Fed at its next meeting Sept 21-22 announces some sort of new QE. My bet is they need to inject massive liquidity into the collapsing banking system and will buy more crap assets from banks and the Fed will also need to expand its balance sheet to pay for Obama's new spending program.

Obviously it won't unfold exactly like that but that's the basic format and Obama and the Fed have already telegraphed something like that. For example take Obama's speech to the huge crowd of welfare/union entitlement recipients in Detroit yesterday and assume that's what he's going to announce Thursday night while most of us click the cable box between the NFL season opener and the U.S. Open tennis tournament. The Fed will have to come up with a way to pay for Obama's program and that will happen at the FOMC meeting.

Gold and mining stocks are going to be volatile BUT they are going to go a lot higher within the next month or two.

Thursday, September 1, 2011

After strategically leaking some details thru various usual "leak" holes, we now have a pretty clear picture - minus key details, of course - what Obama's big "shock and awe" economic faux-stimulus plan to be rolled out next Thursday will look like. The "key details" refer to the true costs of the plans to the Taxpayers and the ways in which those costs will be covered up and obscured.

Part 1 of the plan will entail the refinancing of $1 trillion in distressed Fannie Mae and Freddie Mac mortgages. These are the mortgages currently held by the Fed and guaranteed by the Government. The refi rate would be 4%. Obama will make claim that there won't be any cost of doing this and it will produce $85 billion per year in interest savings that will "flow" back into the economy. Sounds so perfect, huh? What this plan will actually do is will create the transfer of these failing mortgage off the balance sheet of the Fed and onto the balance sheet of the Taxpayer.

In reality what Obama is going to ask us to believe is that he is so almighty that he has the ability to make 2+2=5. The part that gets 2+2 to equal 5 is free. Anyone who knows anything about mortgage finance will tell you that it would be impossible to create a new mortgage with a lower interest rate that replaces a higher-rate mortgage without the cost of doing that being absorbed by either, the investor in that mortgage in form of a haircut the investor incurs on his investment, or the homeowner in the form of a higher amount of mortgage outstanding. Impossible. 2+2 will NEVER equal 5. What's not been leaked out are enough of key details of the plan that would reveal where the true costs of this plan are buried and how these costs will be funded. The money has to either come out of the Fed's pocket, the homeowner's pocket or the Taxpayer/Government's pocket.

We know from experience that the cost will be paid by the Taxpayer. The bottom line on this plan, just like the massive TARP plan in 2008, is that Obama will ask the country to once again socialize the cost of tragically bad decisions by BOTH the big banks who made the loans and the homeowners who overpaid for a home they just could never afford in the first place. There's just no other way to look at this. The people who currently pay taxes will have money taken from their pocket and it will be redistributed first to the banks and then to deadbeat homeowners.

Part 2 of the plan is even more troubling from a Taxpayer cost-burden perspective. This idea was leaked out a couple weeks ago although it's been getting almost no attention. Obama will propose setting up an "infrastructure" bank that will be funded by the Taxpayers and then will go out and raise a large amount of debt in the capital markets that will be guaranteed by the Government but the debt won't count toward the debt-ceiling limit. The number leaked out was $1 trillion. Sound familiar? This is another version of the FAILED Fannie Mae/Freddie Mac "business" model. For a good, quick summary of the plan, read this: LINK

The goal of the "bank" will be to fund infrastructure projects in a way that creates jobs for those who want them. Again this is just another fantasy idea that will serve little economic purpose other than to transfer an enormous amount of Taxpayer wealth to the unemployed and - even more so - to the big contractors who will be awarded the projects. Get ready for a lot more traffic jams and beautiful "bridges to nowhere." This idea is set up to fail from the beginning and it's nothing but an even larger scale version of the $800 billion stimulus plan from 2009 that completely failed to create a sustainable economic recovery BUT it succeeded in ramping up the Taxpayer debt load by another $800 billion.

Please note: in the 3 years that Obama has been President, the outstanding amount of Government debt has increased by 40%. Nominally that number is $4 trillion. But wait, as I was discussing with someone last night, Obama also added $7 trillion in Fannie Mae/Freddie Mac debt to the Treasury debt-load, but this is still counted as "off-balance-sheet." I guess because there is hope that one day the housing market will recover enough to start paying off that debt. BUT, in reality, the Taxpayer debt burden under Obama has actually climbed - not from $10 trillion to $14 trillion - but to $21 trillion when you include the FNM/FRE debt, which technically needs to be included.

There's a statistic compiled by the IRS that shows 54% of the population is expected to pay 100% of the Federal taxes paid by individuals this year. Think about what the means for a minute. If you are one of the 46% of the U.S. population who does not pay taxes, you don't care if the Government spends money like Obama is proposing because it doesn't come out of your pocket. It's not food taken away from you or your family and given to someone else. To me that is a stunning reality about how badly the incentives are skewed in our system and it's why the Government can continuously implement spending programs that transfer wealth from the the Taxpayers to non-taxpayers and the elitists with little resistance from the masses: FORTY-SIX PERCENT of the country either benefits directly from this wealth transfer OR does not help to fund it or both. Think about that if you are one of the 54% who actually pays taxes.

I recall that in 2002, when a close colleague and I were discussing how we thought the collapse of the system would unfold. So far what we outlined has largely unfolded, only it's taken several years longer to occur than we originally envisioned. I remember him saying that "eventually we are going to see things that will blow our mind." I can truly say that the way the last three years under Obama have unfolded - and the incredible, tragic acceleration in fraud and massive theft of middle class wealth enabled by him - has truly blown my mind.

Eric Arthur Blair aka George Orwell

"Hope" is not a valid investment strategy

Full Time Jobs Over Last 5 Years

Is Your Gold Missing?

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Epic Quote - "Jesse" Sent This To Me

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." - Anonymous

The Basic Fundamental Problem

What's the solution?

“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS THE RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION OR LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED.”

Ludwig von Mises – Austrian Economist (1881- 1973)

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie? JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

Priceless Quote From Richard Russell

On Larry Summers: This doofus practically ruined Harvard when he headed it. I can't think of a worse choice to be chief economic advisor. I wouldn't trust Summers to manage a Starbucks franchise.

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.

Quote of the Month

And very relevant in the context of yesterday's post about gold moving higher against all fiat currencies:

Just imagine what would happen if a mere ten percent of the money currently going into bonds were instead to go into gold. As in 1972, the real move has yet to begin.

- Murray Pollit, Pollit & Co.

A Picture Says It All...

www.moneyandmarkets.com

Golden ore samples produced by Eurasian Minerals

Undisclosed exploration site

The Next Reserve Currency?

1 oz. Chinese Panda

Guess who said this?

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

THIS is what REAL money looks like

1 oz. Gold Eagles

Alan Greenspan said what?

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

About Me

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance.
Currently I co-manage a precious metals and mining stock investment fund in Denver.
My goal is to help people understand and analyze what is really going on in our financial system and economy.